Foreign Investors, Private Information, and Price Discovery

41 Pages Posted: 4 Oct 2010 Last revised: 4 Jun 2020

See all articles by Jun Cai

Jun Cai

City University of Hong Kong (CityU) - Department of Economics & Finance

Richard Ho

City University of Hong Kong (CityU) - Department of Economics & Finance

Robert A. Korajczyk

Northwestern University - Kellogg School of Management

Zheng Zhang

Peking University - Department of Finance, Guanghua School of Management

Date Written: June 3, 2020

Abstract

We examine the relation between intra-day price discovery and proxies for financial openness and investor accessibility using a sample of intra-day price and quote data of 1,504 stocks from 23 emerging markets. We measure price discovery by weighted price contribution across segments of the trading day. There is a reliable relation between price discovery in early trading and direct foreign ownership, controlling for other factors. We project foreign ownership onto proxies for private information and investor recognition. The residual from the projection regression captures the impact of unknown factors. We find that the role of private information is much more important than investor recognition and unknown factor in facilitating price discovery.

Keywords: Emerging Markets, Price Discovery, Weighted Price Contribution, Foreign Ownership, Market Integration, Market Microstructure

JEL Classification: F30, F36, G10, G14, G15, G18

Suggested Citation

Cai, Jun and Ho, Richard Yan-ki and Korajczyk, Robert A. and Zhang, Zheng, Foreign Investors, Private Information, and Price Discovery (June 3, 2020). Available at SSRN: https://ssrn.com/abstract=1687116 or http://dx.doi.org/10.2139/ssrn.1687116

Jun Cai (Contact Author)

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Richard Yan-ki Ho

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

Kowloon
Hong Kong

Robert A. Korajczyk

Northwestern University - Kellogg School of Management ( email )

2211 Campus Drive, Room 4357
Evanston, IL 60208-0898
United States
847-491-8336 (Phone)
847-491-7781 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

Zheng Zhang

Peking University - Department of Finance, Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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